Testimony – Acting Mayor R. Carlos Carballada

Thank you Chairman DeFrancisco, Chairman Farrell, members of the committee and other distinguished members of the Senate and the Assembly. I am Carlos Carballada, Acting Mayor of the City of Rochester, and I am honored to have this opportunity to speak to you on behalf of the residents and taxpayers of Rochester. Rochester’s Mayor for the past five years is now our state’s Lieutenant Governor. A special election is scheduled on March 29 to select Rochester’s next mayor. And while I am not a candidate, it is my honor to serve as the Acting Mayor of Rochester. Mayor Duffy inspired me to come out of retirement in 2006 to help drive economic development for the city. Prior to my service with the City of Rochester, I was a Director of M&T Bank and chairman of the Rochester Charitable Foundation. I was also CEO and President of both First National Bank and Central Trust Company in Rochester. During my time in banking, I was chosen by the New York State Assembly to serve on the New York State Board of Regents as Regent-at-Large, Vice- Chancellor, Chancellor and Chancellor Emeritus. I am a native of the Brooklyn, grew up in Buffalo and have called Rochester my home for the last 30 years. I am all too familiar with the difficult fiscal conditions of this state, and Rochester in particular.

I am glad to report that Rochester is at a tipping point for revitalization. Over the past five years, Rochester’s taxable property value has increased 13 percent and projections show a 8 percent increase in valuation will occur in the upcoming 2012 reassessment. We are moving in the right direction and your investment in Rochester is making a difference. We greatly appreciate it. But, as you know, we have a very long way to go. Thirty percent of our families live at or below the poverty rate. The median family income is a mere $29,000 annually. The overall economic crisis remains for both families and for governments, and I support Governor Cuomo’s call to “turn this crisis into an opportunity.” I also support Lieutenant Governor Duffy’s pledge to put the interests of taxpayers ahead of those of the special interests. Thanks to the dedication and talent of our finance and budget personnel, as well as that of our entire management team, we have done an excellent job managing Rochester’s enormous financial burdens to make our City fiscally sound. But unprecedented challenges remain.

To provide some context, Rochester’s population has decreased by 30 percent since 1970. Further, as many other northeastern cities have faced declines in their manufacturing sectors, so has Rochester. Most notably, Kodak’s workforce declined 87 percent in Rochester in the last 30 years, from 61,000 to 7,100. This past reliance on such strong private-sector industries - both ours and the states - has significantly changed in this new economy. The City of Rochester has managed conservatively to reflect the changing reality. We have trimmed our full-time workforce by 30 percent since the 1970s, including a reduction of 11 percent in the last decade alone. We have made significant changes within that smaller workforce. Since 1970, despite the overall reduction in the City’s workforce, the number of sworn police officers has increased by 19 percent. Today our public safety positions now account for 70 percent of our general fund workforce head count. Nonetheless, Rochester’s last two budgets reduced spending by 6 percent and 3.1 percent respectively. We have captured more than 10 percent—or $42 million—in efficiencies in the last 10 budget years and we’ve had to increase our reliance on user fees for major services, such as refuse collection, street maintenance and snowplowing.

While we have redesigned and reinvented local government and produced long-term cost savings and better services for our citizens, we continue to be harshly tested by mandates. We receive less AIM aid than Buffalo, and we are required to provide more money to our school district than Buffalo - even though our school district is smaller. Our Maintenance of Effort mandate forces us to give our school district $50 million more than Buffalo provides to its district. Meanwhile, the amount we receive in state AIM aid, when compared to Buffalo on a per capita basis, shortchanges Rochester by $33 million dollars. The result of these combined disparities is a unique, $83 million financial burden that is simply unfair to our taxpayers. I raise this not to criticize Buffalo, but to highlight Rochester’s unique financial challenges. This disparity is crushing our ability to provide services, and will most certainly result in layoffs in public safety. I submit to you that mandate relief is required to avoid drastic service reductions in our city as we face a projected gap of 14 percent, or $50 million, for the 2011-12 budget year. Of even greater concern, our five-year forecast displays a looming gap of $166 million, or 26 percent of the City’s revenues, in 2016-17. It will not be possible to close these large gaps without relief from state mandates. While tax increases are on the table along with every other option, they can never be the sole solution to filling the budget gap. In fact, the remaining margin on our Constitutional tax limit is $34 million. Our gap is $50 million. We couldn’t tax our way out of this problem if we wanted to. As with other municipalities, the major drivers in our budget gap include pensions and the rising cost of health care. Other factors include our use of $12 million of reserves in 2010-11; projected costs for wage increases; and the deferral of capital investments from last year. Next year, our pension costs will rise 37 percent to $35.5 million. That is a $9.6 million increase. By the 2015 budget year, our pension costs will grow to $64.9 million. Our entire tax levy, excluding the Maintenance of Effort portion for our City School District, is only $45 million. Our taxpayers cannot possibly pay a pension bill that size.

I have been an advocate for education my entire life. However, our $119.1 million dollar tax levy to support Rochester City Schools is locked in place by the MOE law and these funds consume an astounding 73 percent of every property tax dollar that we receive. In the Governor’s Budget address, he described potential savings that could be realized with a wage freeze in education. We in Rochester also need this ability to freeze our employees’ wages given the skyrocketing cost of employee benefits. We have already frozen the City’s management wage scales for two-and-a-half years. I will reach out to our labor partners for their support. A wage freeze would allow us to avoid $7.8 million in service reductions. We would still need to close a remaining $42.2 million gap and there are other ways that you can help Rochester without impacting the state budget.

We need to modify current interest arbitration statutes and regulations. The Taylor Law is a comprehensive labor relations statute that provides many important privileges for public sector employees, including the right to organize and to negotiate the terms and conditions of their employment. However, the Taylor Law increases employer costs by placing key decisions concerning the salary and benefits of local public safety employees outside the control of local officials and taxpayers. The statute does not define the term “ability to pay.” The Law should be amended to require that an arbitration panel strongly consider a municipality’s “ability to pay” when making an award during interest arbitration. “Ability to pay” should be defined as the ability of a public employer to pay any costs imposed by an arbitration award that do not require a reduction in municipal services or an increase in property taxes to fund these costs.

Another form of relief that you could afford the City without impacting the state budget is to support legislation we have drafted that would enable Rochester to continue using revenues from out-of-state fire insurance taxes to partially offset the cost of health insurance for firefighters. Codified in 1849, this New York State Insurance Law requires that fire insurance companies not incorporated in New York pay a fee of between 1.8 percent and 2 percent on all fire insurance premiums, commonly referred to as the “2 Percent Fund.” These funds amount to $700,000 annually. Your support of this legislation would enable us to continue what has been our practice for more than 20 years.

Finally, you could assist us with the utility tax on cell phones. For fifty years, the State of New York, New York City and approximately 60 cities and 360 villages have imposed utility gross receipts taxes. These statutes were recently modernized for New York City and the State to include cell phones. We support, and we ask that you support, any proposal to make comparable changes for other cities and villages. This would “level the playing field” throughout the state and relieve pressure on local taxpayers. This action could reinstate an estimated $1 million in revenue annually for Rochester.

To close, I remain optimistic that we can use this statewide financial crisis to give local governments the tools they need to manage in today’s world. As Mayor Stephanie Miner of Syracuse stated, “It is time to hit the reset button.” The old state parameters and policies regarding local governments will not work in today’s economic reality. As Bob Duffy said, “governments are struggling and we need to be given local control to shape our destiny. If given this control, you have the right to hold us accountable.” The New York State Conference of Mayors’ recent report entitled “Recommendation of the Mayoral Task Force on Mandate and Property Tax Relief” outlines these and other opportunities for mandate relief. I ask you to support NYCOM’s mandate relief proposals. Local governments need new tools to manage with fewer resources, or our citizens will suffer devastating service reductions. Thank you for your time and I would be happy to respond to any questions.